They increase in debt because all social contract governments inevitable spend money to get votes; i.e. creating welfare benefits for people that cost money without raising taxes, for raising taxes is bad while cutting benefits is bad (if your a politician). Since the debt accrued by the government is not a personal liability for the representatives in the government (as they do not privately own the government), they can spend with impunity because no representative is going to have his estate leveraged against the federal debt.

This debt becomes exponential due to fiat currency, in order to pay for wars and welfare without raising taxes appropriately, the politicians disconnected their currency from a finite supply of hard money (gold) thus allowing them to spend with impunity, however dollars cost money to print, so the treasury owes the federal reserve a % for every dollar printed, which means the debt is impossible to pay off.

The only reason this works is because people in the market (schmucks like us) have confidence in the value of the dollar as decreed by the state.

The government has been able to perpetuate this falsehood via the petro-dollar arrangement as the dollar is "theoretically" backed in oil, which only increases in production and is consumed (thus allowing the dollar to increase in volume printed without losing much in way of actual trading value).

Other nations are tied to the U.S. dollar as the reserve currency for buying oil, so all countries have to buy U.S. dollars which increases both U.S. trade and perpetuates the U.S. spending (as other countries demand more dollars from us so they can buy oil).

So to sum;

All social contract governments in the west WILL spend, this is a praxeological necessity of demoncracies as they lack private liability and have only the "hypothetical" of public liability.

The debt accrued is due to spending their way into prosperity using worthless paper that people are duped into believing is valuable because the oil behind has allowed the west to be prosperous. The dollar is the hingepin to the whole system as is the oil that backs it.

Thus, the debt will lead to collapse eventually when one of three events happens to disrupt the system:

1. Either the volume of dollars gets so great with prices so high that people lose confidence in it and it has a value crash due to runaway inflation.

2. We hit peak oil which causes the value of the dollar to drop as all the dollars returned to the U.S. from the rest of the nations causes an inflationary crash and thus lead to a chain reaction of global depressions and mass regimes changes worldwide.

3. Some other event, like a world war, disrupts the system, also leading to collapse.

In most cases, the larger nations in the world cannot default on their debts because it would collapse the world economy.

Its a really fucked up system, a powder keg.

"It is when a people forget God that tyrants forge their chains. A vitiated state of morals... is incompatible with freedom."

Agent Steel wrote:Ok so I knew that the USA is in great debt, but it surprised me to find out that literally every country owes money to someone else.

How could that be?

Secondly, what will happen if the US never pays back its huge debt? How come people don't seem to care? Like everyone's ok with just increasing it more and more and more.

Public debt is "owed" to other nations, but also to corporations, pension funds, individuals, etc. Nothing at all strange or unusual about this arrangement. As an accounting identity, public debt is inversely proportional to private debt. A large public debt is suggestive of a healthy private sector, while a large private debt signals an impending financial collapse.

It is absurdly simple to reduce public debt, btw. Simply reduce the level of new issuance of sovereigns to match the desire of private entities to purchase savings vehicles. It is pure superstition that sovereign currency issuers must issue new debt to offset deficit spending.

The entire debt/deficit hysteria is based entirely on superstition. The only relevant issues are employment, capacity utilization, and inflation - not arbitrary numbers on a budget. Both parties in the US act as though the deficit doesn't matter. They are correct, it doesn't. They only pretend the deficit matters when they want to cut social security and medicare. Nobody asks "how you gonna pay for it" when it comes to F-35s or a massive tax cut for billionaires.

Agent Steel wrote:So then, at what point will the US collapse due to national debt? And how come no one seems concerned about it?

EDIT: Oh nevermind, you answered this. Very good and substantive answer to my question, thank you

If you look at the cycle of boom/bust in the financial sector, which has now has a very long (multi-century) history, it always revolves around private debt, not sovereign debt. Private debt, in this sense, is usually either household or corporate debt, but it can also be central bank debt denominated in an external currency (Eurozone, for example).

Agent Steel wrote:So then, at what point will the US collapse due to national debt? And how come no one seems concerned about it?

The West and the US in particular impose the system on the world, if it ever did stop benefiting Western interests the system would just be scrapped. The debt would be cancelled and a new economic order would be instituted. Only a major disaster like a Carrington event or a nuclear war could bring the US down. The US makes the rules and it can change the rules any time it pleases.

BabbittnounBab·​bitt | \ˈba-bətA narrow-minded, self-satisfied conformist with an unthinking deference to official orthodoxy and institutional authority.

The U.S has been in debt for most of it existence. From the first years of independence to today.

When it comes to the major Western states, esp the 18th-certury to today; it was to finance colonial empires, their expansion wars & maintenance.

Nowadays to finance the Welfare State, combined with intentional deindustrialisation to a 'technological' economy which has meant a lot of loss of manufacturing, transfer most production to the Third World (lower wages, crushed/non-existent trade unions) and emphasis on 'liquid money' (despite the vulnerabilities to panics, shocks and fraudulent gambling).

National debt is not considered 'bad', though the political Right occasionally use it as a political club, and then drive it up when in office anyway, etc.

So basically we've inherited the debt from the imperial past but continued/worsened it because of the stupid neoliberal (and anti-industrialisation) splurge. The chief consequences are a normalised higher unemployment rate, an underclass of exploited non-white immigrants, and elites living it up from a reduced Welfare State with lower taxes, worse inequality and useless politicians they can buy/lobby to keep the cycle going.

"Why is it always the innocents who suffer most, when you high lords play your game of thrones?" Lord Varys, Game of Thrones.For Zionism, Socialism and Brotherhood amongst Nations - Mishmar paper banner, Mapam Party (Israel)

quetzalcoatl wrote:A large public debt is suggestive of a healthy private sector, while a large private debt signals an impending financial collapse.

This makes no sense. I don't know where the first statement even comes from. As for the second, the question is whether debt is backed by assets, debt by itself is not the issue. Or to be more precise, the question is whether the assets that back the debt are overvalued.

It is absurdly simple to reduce public debt, btw. Simply reduce the level of new issuance of sovereigns to match the desire of private entities to purchase savings vehicles. It is pure superstition that sovereign currency issuers must issue new debt to offset deficit spending.

Reducing public debt is not that simple. For public debt that is owned by the private sector or foreign governments (i.e. not the central bank), there are the options to default or to pay it back, either by increasing taxes or by the central bank buying it. The extent to which the latter doesn't collide with the goal of price stability depends on the macroeconomic situation.

quetzalcoatl wrote:The entire debt/deficit hysteria is based entirely on superstition. The only relevant issues are employment, capacity utilization, and inflation - not arbitrary numbers on a budget.

Since those are related to deficit spending, deficits obviously do matter.

Rugoz wrote:This makes no sense. I don't know where the first statement even comes from.

The "statement" is the standard accounting identity that describes any nation-state economy:

The most immediate consequence is that austerity, by definition, cannot work. If you reduce government sector, the private sector will either be forced to go further into deficit, or engage in layoffs/shutdowns. You cannot do both simultaneously.

I own several tens of thousands of dollars in Government Inflation Protected Treasuries. It's a safe investment, and I get far better interest rates than what any bank would offer. The government's debt to me seems to help me.

The bigger problem is really the trade deficit. The debt isn't a problem because if you have a balanced budge, the debt will naturally decrease due to inflation.

"quetzalcoatl wrote:The "statement" is the standard accounting identity that describes any nation-state economy:"

Rugoz wrote:It says quite the opposite. An deficit will crowd out private investment, unless not all savings are invested (e.g. in a recession), but in that case you have to go beyond this equation.

Sorry, but despite the FACT that this was taught to you at Univ., you are just wrong.

When the US Gov. deficit spends, it first spends the money which by definition goes into the banking system. Then it sells the bonds to finance the spending. Note this is after it kytes the checks. [source: 2 different MMT professional economists]

Therefore, the banks have the money to loan to companies to be used as "private investment" or to buy the bonds, before the bonds are sold.

And anyway, banks DO NOT only lend dollars that they have on deposit or that they got from the Fed. Res. using the discount system. Banks just lend new money. They create new money with every loan, just by adding it (while getting it form nowhere) into the borrower's account at the bank. This deposit adds to the reserves that the bank has that night. When the borrower spends the money in that account it goes to a different bank. The 1st bank can and often does borrow it to meet its reserve requirements on the "overnight interbank loan market".link for source for above --- https://www.sciencedirect.com/science/a ... 1914001070